TUPE may not apply when contracts are split between suppliers

This case, and the earlier case of Kimberley, raise essential issues for service providers, who would expect TUPE (Transfer of Undertakings (Protection of Employment)) to apply when their provision of services is brought to an end. TUPE might not apply, and they might unexpectedly be left with redundant employees. The issues are also relevant for customers who are considering a change of contractor, and who would be prepared to split the work among a number of replacement providers.

Facts

This case concerned the National Asylum Seekers Service (NASS), which was created to provide accommodation for asylum seekers. In March 2000, NASS awarded national contracts to designated service providers for a five-year term for the provision of accommodation and support services to asylum seekers. These contracts were awarded on a regional basis. In the North West, the service was provided by four private contractors, including Clearsprings.

As the old contracts expired, NASS carried out a fresh tendering process, which ultimately led to new five-year contracts being awarded. Clearsprings was not awarded a new contract in the North West, but three other contractors were and the asylum seekers covered by Clearsprings’ contract were randomly re-allocated to the incoming contractors. The question arose, was there a transfer of employees from Clearsprings to the incoming contractors under the TUPE regulations?

Decision

The employment tribunal found there was an activity that constituted a service provision change. However, it held that where no single transferee could be identified as having taken over the activity, TUPE did not operate. Also, the tribunal could not identify a transfer date, which indicated that the “activity” had become so fragmented as to be outside the scope of TUPE. The Employment Appeal Tribunal (EAT) upheld this view.

The EAT referred to the case of Kimberley Group Housing Limited v Hambley, which came out after the tribunal’s decision. In Kimberley, the EAT held that there could be a service provision change under TUPE where a contract transferred from one contractor to several, but that there will be some circumstances in which a service is, on transfer, so fragmented that TUPE cannot be applied to it.

The EAT held that Clearsprings was just such a case. The activities carried on by Clearsprings were so fragmented following the service provision change that no relevant transfer took place under TUPE. One factor that influenced the EAT was the fact it could see no pattern of how asylum seekers were allocated to the incoming contractors.

Implications

The decision will be relevant for parties involved in outsourcing or re-tendering exercises where there is an increase in the number of contractors and/or a redistribution of the original activities carried out. But the general principle remains that TUPE may apply where activities are redistributed to a number of different contractors. However, incoming contractors may be able to avoid TUPE if the relevant activities are sufficiently split up and fragmented between them, particularly if the activities carried out by particular employees or groupings of employees are split between different new contractors.

As often happens, this case does hinge on its particular facts – but there are clear conclusions to draw from this and the Kimberley case: the greater the fragmentation of an activity post-transfer, and the greater the number of contractors post-transfer, the greater the likelihood that TUPE will be avoided by those incoming contractors. This is a risk for providers of services, where those services could in due course be fragmented in the hands of a number of replacement contractors.